Accounting Business Reporting for Decision Making

CHAPTER 7 Statement of cash flows 271

In summary:

1. Teresa injected $20 000 of her own money into the business


2. Teresa borrowed $50 000 from her aunt, due for repayment in 2026.

Teresa’s opening balance sheet as at 1 April 2016 is shown in illustrative example 7.2. When reading

the balance sheet, remember the accounting equation:

Assets = Liabilities + Equity

ILLUSTRATIVE EXAMPLE 7.2

Balance sheet

Teresa’s Carpets and Rugs

Balance sheet as at 1 April 2016

Assets

Cash $70 000

Liabilities

Loan $50 000

Equity

Capital contributed — T Tang 20 000

$70 000 $70 000

Teresa’s opening statement of cash flows for the period 1 April 2016 is shown in illustrative

example 7.3.

ILLUSTRATIVE EXAMPLE 7.3

Statement of cash flows

Teresa’s Carpets and Rugs

Statement of cash flows for the period 1 April 2016

Cash flows

Proceeds from loan

Proceeds from capital (equity) contributed

$ 50 000

20 000

Net cash flows 70 000

Beginning cash balance —

Ending cash balance $ 70 000

Teresa needs a shop in which to sell her rugs. She finds the right shop in a boutique shop-

ping precinct featuring arts galleries, antique shops, coffee shops and smaller retail shops. She

leases the shop for a period of five years. The cost of the lease has two components. The first is

a lease premium of $10 000. This is payable immediately and gives Teresa the right to occupy

the shop for the next five years. The second is a yearly rental of $12 000 payable in monthly

instalments. On 2 April 2016 she signs the lease and writes a cheque for $10 000 in favour of the

lessor.

Teresa’s balance sheet as at 2 April is shown in illustrative example 7.4.